Elucidating the molecular regulation of viral gene expression may lead to new modalities of antiviral therapy. By genetic and biochemical analyses, our laboratory has demonstrated the existence of a novel genetic element (HRL) within the HBV genome that is important for efficient expression of viral gene products. This genetic element is cis-acting at the posttranscriptional level, and its function is exerted at the level of RNA processing as part of transcribed sequences. Similar to the function of Rev-RRE interaction of HIV-1, this element appears to inhibit the splicing process and facilitate the transport and utilization of HBV transcripts. This HRL element may also play an important role in the pathogenesis and host response of HBV infection. We are also studying the regulatory effects of host-derived factors on the function of this element. In the HBV transgenic mouse model, TNF-alpha and IFN-gamma have been shown to inhibit HBV gene expression at a posttranscriptional level that is presumably related to the HRL element. It has been suggested that the effect is not directly exerted on the hepatocytes but rather via a paracrine mechanism on hepatic nonparenchymal cells. Using a co-culture system of Kupffer cells and hepatoma cells expressing HBsAg, we demonstrated that addition of TNF-alpha and IFN-gamma induced a strong inhibition of HBsAg expression. This effect is not mediated by a direct effect of TNF-alpha and IFN-gamma on the hepatoma cells. It is likely that these two cytokines activated the Kupffer cells to produce a factor (s) that, in turn, inhibited HBV gene expression. Studies are under way to identify and further characterize the molecular mechanism of this effect.